Momo Inc. (MOMO) Q4 2020 Earnings Call Transcript

Momo Inc. (NASDAQ: MOMO) Q4 2020 earnings call dated Mar. 25, 2021

Corporate Participants:

Cathy Peng — Head of Investor Relations

Li Wang — Director and Chief Executive Officer

Wang Yu — Co-Founder and Chief Executive Officer, Tantan Limited

Jonathan Xiaosong Zhang — Chief Financial Officer

Analysts:

Thomas Chong — Jefferies — Analyst

Tian Hou — Analyst

Presentation:

Operator

Ladies and gentlemen, thank you for standing by and welcome to Fourth Quarter and Full Year of 2020 Momo Incorporated Earnings Conference Call. [Operator Instructions] And after the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions].

I would now like to hand the conference over to your first speaker today, Ms. Cathy Peng. Thank you. Please go ahead, ma’am.

Cathy Peng — Head of Investor Relations

Thank you, operator. Hello, everyone, and thank you for joining us today for Momo’s fourth quarter and fiscal 2020 earnings conference call. The company’s results were released earlier today and are available on the company’s IR website.

On the call today from Momo are Mr. Wang Li, CEO of the company; Mr. Wang Yu, Founder and CEO of Tantan; and Mr. Jonathan Zhang, CFO of the company. They will discuss the company’s business operations and highlights, as well as the financials and guidance. We will all be available to answer your questions during — they will all be available to answer your questions during the Q&A session that follows.

Before we begin, I would like to remind you that this call may contain forward-looking statements made under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements are based on management’s current expectations and current market and operating conditions and relate to events that involve known or unknown risks, uncertainties and other factors, all of which are difficult to predict and many of which are beyond the company’s control, which may cause the company’s actual results, performance or achievements to differ materially from those in the forward-looking statements. Further information regarding these and other risks, uncertainties, and factors is included in company’s filings with the US Securities and Exchange Commission. The company does not undertake any obligation to update any forward-looking statement as a result of new information, future events or otherwise, except as required under law.

I will now pass the call over to Mr. Wang. I will translate for him. Mr. Wang, please.

Li Wang — Director and Chief Executive Officer

[Foreign Speech] Good morning, and good evening, everyone. Thank you for joining our conference call today. 2020 was a tough year for all of us. I’m proud that my teams were able to navigate through the many challenges with relentless focus on our core mission, which is to help users discover new relationships and build meaningful interactions. The commitment to that core mission also enable us to make difficult and right decisions in the past year for the long-term well-being of the company and our community. Getting through that bumpy journey was also a valuable growth experience for my team. I’m happy to see that we have finally come out of those temporary drawbacks, stronger and better poised to seize the growth opportunities ahead of us.

[Foreign Speech] My speech today consists of two sections. In the first part, I’m going to review the key operating and business results for the fourth quarter and fiscal 2020, and then I’m going to run through our strategic priorities for the year 2021 and perhaps more importantly, how these near term strategic priorities fit into our ambitions over the longer-term horizon.

[Foreign Speech] First of all, a brief overview of the financial performance. For the fourth quarter 2020, total revenue was RMB3.80 billion, down 19% year-over-year, but up from RMB3.77 billion last quarter. Q4’s revenue came in better than our original expectation, mainly because of the outperformance from Momo’s live streaming business in the year-end competition event. Adjusted net income for the quarter was RMB836 million, representing a 22% profit margin. Excluding Tantan’s net loss, adjusted net income for the core Momo was RMB845 million or a 28% profit margin. Tantan’s total revenue came in RMB341 million for the fourth quarter, up 100% year-over-year. Adjusted net loss of Tantan further narrowed down to 3.3 — to RMB8.84 million as a result of strong topline growth, as well as temporary scale back of marketing investment in the fourth quarter.

[Foreign Speech] For fiscal 2020, total revenues for the whole group were RMB15.0 billion, compared to RMB17.0 billion last year. Adjusted net income was RMB2.9 billion, compared to RMB4.49 billion last year. The year-over-year decrease at topline and bottom line level were mainly caused by the COVID impacts during the first half and a structural reform in the second half of the year.

[Foreign Speech] Now a deeper dive into other aspects of the year. First, on key operating metrics. Momo core ended the year with 113.8 million MAU’s, slightly better than last quarter, but still below the peak level in the year 2019, primarily due to the — due to us optimistically lowering marketing spend in November and December for ROI considerations. As we expected on last earnings call, the acquisition cost per user was at a hyper-level due to heavy spending from the education, eCommerce and to some extent gaming companies. We therefore would rather defer part of our marketing spend after Chinese New Year when the marketing cost came down.

Paying user counts, which has pretty — has been pretty much in correlation for MAUs came in 9.0 million for the core Momo, flattish over last quarter. The post Chinese New Year user recovery on the core has been pretty encouraging, which can be attributed to our successful campaigns during and after Chinese New Year, as well as the team’s efforts to improve the basic social experience, which I would like to elaborate a little bit later.

[Foreign Speech] Tantan’s paying user count came in 3.8 million end of 2020, down from 4.1 million from the previous quarter. The net decrease was attributable to the following two factors: number one, the continuous rollout of the SVIP premium package, which had a positive impact on ARPPU and negative impact on the number of paying users due to its price lifting effect. The second factor pertains to the pressure on MAU as we substantially lowered Tantan’s investment in the paid marketing channels, due to the same ROI considerations as mentioned in the earlier part of my remarks. The user acquisition costs came down during the Chinese New Year holiday, so we stepped up our marketing efforts then to capture the window opportunity.

[Foreign Speech] At the same time, we believe that the biggest priority for Tantan this year is to reshape its user acquisition system and more broadly its marketing approaches, so that we can see substantial improvement in its marketing efficiency. This is an area where Momo team has extensive expertise and experience to land. Momo undertook the same reform in 2017 and have since made significant improvements in user acquisition and subsequent conversion.

We are going to implement the same playbook on the marketing front at Tantan this year. Our marketing team has already started some initial work since the beginning of the year. These early works confirmed our belief that Tantan still has significant headroom to grow its user base by optimizing its marketing and conversion approaches.

Our February campaign shows that even the initial change in the marketing approach could make a difference. For example, the initial adjustment to the marketing materials and the data management system brought in a substantial increase in the female percentage in the new users. At the same time, we were also able to see some initial improvement in managing the unit acquisition cost, as well as the user retention ratio. Of course, we still have a lot of hard work ahead of us and making this one of my biggest priorities for the year.

[Foreign Speech] Now let me switch gears a little bit to review the key things that we did last year to better serve our users and communities. I’m going to break this part down by the core, Tantan and then the newer bucket within our product portfolio.

[Foreign Speech] First of all, on the core Momo side, the biggest focus of the team last year was to improve the basic social infrastructures and user experience on the platform, including the nearby people, nearby coasts, optimizing our on-boarding experience and making initial upgrade to the user resurrection model. As a result of these product and operational efforts, in Q4, 2020 we were able to see meaningful improvement in some of the most important metrics reflecting a social efficiency on Momo. Among them, the number of impressions on the user profile page and number of two way conversations, as well as the number of interactions around nearby content has reached their peak since the beginning of 2018.

At the same time, the 30 days retention ratio for resurrected users improved 3 percentage points versus the beginning of the year. The 30 days retention ratio for complete new registrations reached its peak level since the beginning of 2019. These improvements in engagement metrics show that even amid tremendous external challenges of the year the fundamentals of core Momo as a social platform to build new relationships are strengthening. That constitutes a solid foundation for Momo to pursue further growth opportunities in the year 2021.

[Foreign Speech] Now turning to Tantan. I’ll be brief here and leave the details to Wang Yu later in his speech. If I were to name only one most impressive progress Tantan made in the year 2020, it would have to be that, we’ve taken a few concrete steps toward enriching the peripheral social experience around the core swipe and match system. We will further accelerate Tantan’s product efforts this year aiming at taking the core dating experience to the next level and making it better fit into the Asian dating culture.

[Foreign Speech] In addition to the Momo core and Tantan, in the year 2020 we have made solid progresses with endeavors to build new applications. For example, Hertz, a voice-based dating application primarily serving the Gen Z in lower-tier cities and [Indecipherable] a video and voice based matchmaking application serving users seeking more serious relationships have all hit their respective retention and ROI targets for the first phase. This year we’re moving these two applications into the second phase where we are going to demand the growth of users as well as the fulfillment of ROI too, which means having enough revenue generation power to cover the revenue share and the marketing costs. This is an important milestone metrics in our new project management system, because once the new application reaches that stage it is rolling into a self-sustaining cycle and have the ability to contribute to the bottom line.

Other than these ROI focused new applications we were — we are also working on a couple of projects that aim at establishing new touch points in the social as well as the [Indecipherable] payment industry [Technical Issues] as compared with the year 2019 we now have a much more mature system that effectively evaluates and manages different types of new projects at different stages.

[Foreign Speech] Now turning to a quick review across our key business lines. I’m going to focus on the core Momo and leave Tantan part to Wang Yu. Firstly on live broadcasting. 2020 was a challenging year for the live streaming team at the core. During the first half the business, especially, the top spending was struck hard by the COVID impact. In August, we undertook a structural reform for the live stream business in order to revive the long tail content ecosystem and to make sure this cash cow business continues to grow healthily in the new external environment. The reform touched many different areas on the product and operational side. Although the initial product adjustment in August caused significant negative impact on revenues, it was a critical step in eradicating the undesirable practices that were harmful for the long-term healthiness of the business. After several months of hard work we have started seeing positive signs for improvement in the content ecosystem. Revenues have also shown stabilization and a gradual improvement from the bottom seen in August.

[Foreign Speech] It’s also worth mentioning that by the end of last year with a new incentive plan we have successfully achieved our goal in the Golden broadcasters’ contract renewal project securing the big majority of the high-grossing performers by multiple years’ exclusive contracts. It will provide — it will provide a solid base for us to drive continuous improvement in the live stream business at the core.

[Foreign Speech] The new incentive plan also gave a morale boost to the new performers and agencies. The outperformance of the year end competition was a good example of that. We had quite a few new agencies and performers emerging from the competition as hard working and dedicated value adding partners for Momo platform. Moreover, we were able to manage cost structure well enough to fully absorb the impact of the increase in the payout at a gross margin level, which remain flattish versus Q3. This was a much better outcome than we originally expected, demonstrating our focus and ability to grow the business at a gross profit and cash flow level rather than purely at the revenue level.

[Foreign Speech] Our plan in 2021 is to continuously support newcomers by diverting more traffic toward the mid to long tail. We also have plans to enrich the content verticals and to promote content that emphasize on emotional companionship, in particular, in order to further cultivate the social attributes of the Momo platform.

[Foreign Speech] Now turning to VAS on the core. I’m quite satisfied with the team’s execution on the VAS front during the past year. In a tough external environment, we’ve managed to not only deliver robust growth, but also successfully control the pace of growth to make sure it plays a positive role in the overall social ecosystem. Last year the growth of VAS was primarily driven by innovative product and operational ideas. For example, we continue to introduce new moderated shows into the chat room experience. In addition, we also brought in interactive gifts into the audio and video social entertainment experiences. This has proven to be a sustainable lever that we can pull to drive revenue and engagements in the chat rooms.

In the second half of the year, we revamped the VAS experience and introduced a bunch of new gifting experiences into the interest group, both of which subsequently showed impressive growth. This proves that even for very mature use cases as long as we continue to innovate our consumer and paying experiences, there is always going to be opportunity for us to drive further growth in VAS.

[Foreign Speech] I’m also pleased that the VAS team focus not only on the quarterly revenues, also on building future drivers for the long-term. Throughout 2020 Hertz and [Indecipherable] continue to show gradual improvement both in terms of retention and user scale. We now have established a clear roadmap and extend our playbook for monetizing these experiences. As said in early part of my speech, 2021 will still be a year focused on product, but we do expect Hertz and [Indecipherable] to contribute more meaningfully to the VAS line relative to last year. We also believe that they have the potential to become longer-term driver to both the topline and the bottom line.

[Foreign Speech] Those are the business updates. Now moving to the most important part of my speech today, our strategic priorities for the year 2021 and how these mid-term priorities fit into our ambitions over the long-term horizon. Again, I’m breaking this section down by the core, Tantan and the new endeavors.

[Foreign Speech] For the core I have two goals for the team. Number one, further grow the core user base with limited marketing budgets and improved ROI versus last year. Our action plan to this goal consists of three key tasks: A, build new social experiences within the core to better serve underserved user demand. For example, we are clearly seeing the social desire from female users on Momo. But the product and services we currently have on the core clearly work much better for men rather than women. This is an area where we should and can do much better than before; B, penetrate deeper into lower tier markets with Momo Lite. This was a key product project for last year, we actually made some good progresses on the product side in the second half of 2020, but the marketing plans got stuck due to the measures in different regions to keep the virus under control. As COVID risk continues to tail out this year, we still have good opportunities to push the plans forward; and C, substantially refining our user resurrection model. Complete new registrations are increasingly becoming a scarce and expensive resorts for every social media operator. That makes it crucially important to cultivate the value of its existing users, as well as the users in dormancy. This is an area where Momo has lots of edge, because we have a large pool of dormant users and can leverage new social experiences to call them back. The focus this year is to improve our current resurrection model, so that we can do much more effective targeting and conversion and drive better ROI from the reactivations.

[Foreign Speech] Second goal for the core, of course, is to get the business on to the growth track. We need the cash cow to remain productive, not just at the revenue level, but at the gross profit level as well. As compared to the user goal this one is easier to fulfill, because from the trends we’ve seen — we’ve been seeing so far into March, it seems that we have already completed the most arduous part of the journey and get the live streaming business on track for recovery. VAS having been growing robustly for the past two years still has plenty of growth opportunities, both in terms of traffic and in terms of new revenue features. As a social platform, 70 plus percent of our DAU and 80 plus percent of total time spent are not related to live streaming at all. Having VAS as a main revenue source we will eventually prove to the investor community our potentials and advantage as a social networking products as opposed to a live streaming product. That’s an important goal I’ve set for the team for 2021 and beyond.

[Foreign Speech] Now moving on to Tantan. Our goal for the year is to deliver solid user growth by substantially improving the marketing efficiency and the core dating experience. As I said on the previous call, Tantan has huge room to grow its user base and engagements due to the secular trends that we’re seeing in China. And currently, we can say with full confidence that in China Tantan is clearly the most committed, as well as the most effective dating product focused on connecting people for romantic purpose and offline relationship conversions. This is a fundamental demand proven throughout human history. I see no reason why Tantan cannot be as large as Momo today in terms of user scale.

As a matter of fact, it should be much bigger than — it should be much bigger than that as we see — as we see how today’s young peoples evolve as it relates to dating culture. Now the question really is, why we are not growing as fast as we should be? The answer is not because the opportunities are not there or somebody else is stronger than we are in serving that demand, but because there are important areas where we need to improve we should make our product and marketing efforts more effective and execution more efficient so that we hit the nail right on its head to pin down the growth opportunities that we’re seeing. The two teams will need to work more closely together in order to push forward faster. This year, you would see the collaborations between Momo and Tantan moving to a deeper level.

[Foreign Speech] Now turning to the plans beyond Momo and Tantan. This, of course, involves the new applications that we’re working on. About which I’ve already talked a lot in the previous sections. But there is something more to it. Many of you would agree with me that in coming 10 years we’ll see continuous boom of China’s private consumption and it will be gearing up from a good driven mode toward a service and new consumption driven model. The coming decade will also see phenomenal changes and advancements in communication technology and hardware devices. Moreover, with the rising personal income and education level, the world’s highest level of digitalization and increasing focus on individuality, today’s younger generations are becoming increasingly open toward the idea of online dating and broader social product and services providing emotional companionship.

It’s quite possible that we will see the cultural reflection — inflection point in the dating and social space within the coming decade. As a company that focuses on helping people build new relationships, we stand at the cross section of all those [Technical Issues] trends. That’s why I’m extremely excited about the growth opportunities that we have ahead of us. In order to capture these opportunities we need to: A, drill down deeper in our strong areas, namely the open social space; and B, push the boundaries and extend the footprint in other adjacent areas along the value chain. And last but not least, stick to our long-term mission and have sufficient patients and tenacity to push through.

[Foreign Speech] Lastly, I would like to finish my speech today by announcing that our Board has declared a cash dividends in the amount of $0.64 per ADS, which will amount to a total cash payment of approximately $132 million or 30% of our adjusted net income attributable to Momo Inc. In 2020 — Momo Inc. in 2020. This is the third consecutive year that we’ve shared the fruits of our operation with the shareholders. It demonstrates management’s confidence in the fundamentals of the company, as well as our commitment to creating and delivering shareholder value for the long term. Thank you for trusting Momo team.

[Foreign Speech] These are the things I liked to cover on this call. Now here is Wang Yu to talk about Tantan’s product and service — product and business development. Mr. Wang, Please.

Wang Yu — Co-Founder and Chief Executive Officer, Tantan Limited

Thanks. So, let me briefly review Tantan’s operational and business development in the past quarters and on the success. First, a quick review of the user trends and related metrics. [Indecipherable] and paying users were impacted by the COVID outbreak in early 2020. By May the pandemic in China got under control and we subsequently saw decent user recovery from May to early August. Since mid-August the user acquisition cost has started to rise dramatically due to the aggressive marketing investments from education and online gaming companies. And in Q4, joined by e-commerce players as well.

For ROI considerations, we’ve scaled back our spending in the paid marketing channels in Q4, which put some pressure on the user trend. During Q4, our team fully focused on improving the marketing efficiency and lowering the user acquisition costs. The team conducted a thorough walk through of the system to identify potential areas of improvement and optimization. We realize that marketing and top of the funnel conversion is indeed an area where we need to make increased investments — improvements in order to get more efficient in driving user growth.

It is actually a great deal essential we can cultivate to. In Q4 and January 2021 we quickly put two things in place for the Chinese New Year’s campaign. Number one, building up the back-end infrastructure to enhance our data tracking capability, so that we can provide more effective feedback to our channel partners. Number two, beefing up ad materials to make it more appealing to our target users. We stepped up our marketing efforts when the competition became milder towards mid-February. We were able to see some initial positive results on the cost side. The new ad materials and channel strategy are also bringing in a significantly high percentage of women in the new users. At the same time, the retention ratio in new users also improved meaningfully. Overall, we are on track to deliver a better March DAU than last December.

More importantly, we should be able to achieve that while further lowering the marketing costs from Q4, which was already a step down from Q3. All of this gave us the confidence that this is the right path to go down. From March onwards, we are going to take bigger steps to refine our marketing approaches. I’ll give more details later.

Now turning to paying users. Paying users for the fourth quarter of Tantan totaled 3.8 million, down from 4.1 million last quarter. The 300,000 net decrease was due to the combination of the full scale rollout of SVIP package, as well as the pressure on the users due to the decreased marketing spend in Q4.

Now briefly on revenues. Total revenues for the fourth quarter reached RMB740.5 million, up 100% year-on-year. The growth was driven by the increase in average revenue per user, which is contributed by the live streaming service, as well as users continuous shift towards higher priced membership services. For fiscal year 2020, total revenue was RMB2.37 billion, up 88% from last year. Live streaming contributed vast majority of the incremental revenue, which amounted to RMB999 million. Despite the decrease in number of paying users, VAS revenue still grew 9% on a year-over-year basis, driven by the steady ARPPU increase.

Next, let me give you an update on the progress that we’ve made against our other strategic priorities. First, enriching the product experiences. One of our biggest focus for 2020 was to build supplementary features and services around the core swiping experience. So we can offer a richer canvas for users to discover and established new romantic relationships. In the first half of the year we introduced a brand new version of Tantan with discovery page and nearby posting activities, which paved the road for further diversification of our offerings. This is particularly helpful for users who find it less effective to connect in the interact based on the swipe and match mechanism, providing Tantan users with richer ways to connect beyond our signature swiping experience is an important step that we’ve taken to enhance user engagements, retention and time spent.

Towards end of last year we have also begun a limited scale testing on a new voice dating experience, which based on the early data, we have been seeing pretty positive engagements in revenue driver in the coming few quarters. Another achievement for 2020 was the successful introduction of live video service, which has clearly helped us further unlock the monetization value of the platform. This was particularly helpful when our membership business was under COVID related pressures. At the same time, we have also have been extremely careful in monitoring and pacing the growth of live streaming service to make sure that we place a complementary roles in the core dating experience and does no harm the overall dating ecosystem.

So far, live streaming has been fitting well into the dating ecosystem without showing any significant undesirable results. In comparison with core Momo live streaming, Tantan’s paying user structure and performance revenue contributions are much more decentralized and long tail driven. Tantan’s showrooms are relatively small with fewer concurrent users, but very interactive. For small showrooms you do not have to pay a huge amount in order to get a quality interactions. So the relatively flattish distribution structure is very helpful in enhancing the social attributes for the live streaming experience of Tantan.

Our intention is to keep our live video channels that way this year. For that reason we’re going to continue to control the pace in adding revenue oriented operational efforts. Especially those that aim at increasing the ARPPU or otherwise cost centralization.

In late Q3, we also started rolling out the new SVIP membership package. New package includes some existing popular membership privileges, as well as a number of new premium features added to the package. The goal of introducing the SVIP is, of course, to offer new value-added services to the dating community.

However, we do have a rationale on the business front as well. During the past couple of years, we have consistently observed a key trend that young people in China are demonstrating strong willingness and rising consumption power to pay for dating services. I believe that such trend is going to continue or even accelerate in the coming decade.

Long-term wise, the best way to take advantage of such secular trend is certainly to supplement the subscription-based model with a good non-sub based value-added service mechanism. This is indeed one of our key priorities in the coming few years. But for the time being, within the subscription model we also need a mechanism whereby we can adjust the average selling price, which is by nature, more rigid within the sub model. SVIP is our attempted solution here. So far such solution have been working pretty well, both in terms of how the user receive it and in terms of hitting the goals we are trying to achieve on the business side.

After the rollout of SVIP, we seize to offer some previously existing features, such as separate VAS items. Our general principle in making price decisions is to maximize revenue. The combination of merchandise replacements and the price strategy led to a de facto priceless effect, which caused number of subscribers to decline in ARPPU on the contrary to rise. As we expected, Q4 VAS revenue indicates that full scale launch of SVIP is positive to the overall revenue. For the users who churned previous package, but yet subscribed to SVIP, we plan to board them back over time via payroll strategy or new VAS features. Therefore, this approach actually leaves bigger room for us to drive paying user expansion as well as revenue growth in the future.

Those are the key updates about the year 2020. Now that we’ve started the new year, I’d like to briefly talk about the key things on our agenda for 2021. As Wang Li mentioned, our growth is the top — the top priorities for Tantan this year. Two areas that are crucially important for us to achieve the goal — this goal. First, significantly improve marketing efficiency. The second, make the core dating experience more appealing. On the marketing side there are a number of things that we need to do. Number one, we’re going to further optimize our user acquisition system. Although we have made some initial progress in beefing up our channel marketing approach, we still have a lot of work ahead of us. These efforts range from making fundamental changes to the back-end infrastructure, such as enhancing our data tracking capability and feedback system through improving the ad materials and adjusting them based on the outcome of the campaign.

Number two, optimize our user conversion model, so we can drive better ROI for user acquisition. Number three, enhance our brand awareness. Tantan is relatively young brand, there are still many people who are not using Tantan because they have not heard of us before or yet to be fully aware of the core value Tantan can provide. We will invest more to empower our brand equity and drive user awareness this year.

The second area we need to improve is to enhance the core dating experience. While Tantan is undoubtedly the most dedicated and effective dating app in China, we do have many opportunities to optimize so we can do better in connecting the users for romantic purposes. The most near-term priority is to make our swipe and match system more effective. Our efforts include upgrading the user tagging system to generate better portraits of each of the Tantan users. And based on the tagging and other aspects of big data mining, optimizing the recommendation engine to make more relevant searches.

We want the users to genuinely feel that Tantan understand what they’re looking for on the platform. While continuing to strengthen our dating related product offering, we are also going to keep exploring more diversified features and services to make the Tantan experience better fit for Asian dating culture. This in turn will further improve user engagement and retention, which will translate to user growth.

Those are the key things that I’d like to cover for today. So let me pass the call over to Mr. Jonathan Zhang for a financial review. John, please.

Jonathan Xiaosong Zhang — Chief Financial Officer

Thank you. Hello, everyone. Thank you for joining our conference call today. Let me briefly take you through the financial review. Total revenue for the fourth quarter 2020 was RMB3.8 billion, down 19% year-on-year, up 1% quarter-on-quarter, exceeding the high end of our revenue guidance, primarily due to the better than expected outcome from the year-end competition event in live streaming business.

Non-GAAP net income attributable to Momo was RMB836.4 million, compared to RMB1.25 billion for the same period of 2019 or a 33% decrease year-over-year. Total revenue for fiscal year 2020 was RMB15.02 billion, compared to RMB17.02 billion for 2019, down 12% year-on-year. Non-GAAP net income attributable to Momo for 2020 was RMB2.9 billion compared to RMB4.49 billion for 2019, a decrease of 36% year-on-year.

The year-over-year decrease in topline and bottom line was due to the impact from the pandemic during the first half of the year and the structural reform in the second half in 2020, partially offset by Tantan’s rapid growth in revenue and narrowing loss.

Looking into the key revenue line items for the quarter. Firstly, on live broadcasting, the total revenue for live broadcasting business for the fourth quarter 2020 was RMB2.33 [Phonetic] billion, down 31% from the same period last year, and 2% from last quarter. Core Momo’s live broadcasting revenue totaled RMB1.92 billion for the fourth quarter, down 43% from the same period last year and 3% from last quarter, while Tantan’s live broadcasting revenue amounted RMB404 million, 2% up from previous quarter.

Moving on to VAS revenue. Revenue from the value-added services reached RMB1.4 billion, up 18% year-on-year, 5% quarter-over-quarter. Revenue from VAS, excluding RMB336 million from Tantan, reached RMB1.07 billion for the fourth quarter of 2020, a 30% increase year-over-year, 7% increase sequentially. The solid performance of Momo’s core VAS business was primarily driven by the team’s focus on product innovation and effective operational efforts. The audio and video based social entertainment experiences continued to generate strong growth momentum, and was the biggest revenue driver for the core Momo VAS services.

Now, let me briefly review the costs and expenses items for the quarter. Our non-GAAP cost of revenue for the fourth quarter of 2020 was RMB2.02 billion compared to RMB3.32 billion for the same period last year. Non-GAAP cost of revenue, as a percentage of total revenue was 53%, an increase from 50% from Q4, 2019. Non-GAAP gross profit margin for the quarter was down about 3% from a year ago. The decrease was attributed to the following factors: number one, high payout ratio from the core Momo’s live broadcasting business; number two, lower gross margin for Tantan as its live broadcasting services revenue has become increasingly sizable; number three, higher payout ratio from core Momo VAS business due to the robust growth coming from audio, video based social entertainment business, a big part of which involves third-party professional moderators; and number four, certain fixed nature cost items such as headcount, depreciation of fixed assets related impacted the gross margin negatively as the total revenue declined, and these items represent a higher percentage of total net revenue. On a sequential basis, the non-GAAP gross margin remained flattish comparing to Q3, much better than our original expectation.

As Wang Li mentioned earlier, in Q4 we successfully lockdown a vast majority of existing high grossing broadcasters by rolling out a new incentive program. We originally had expected this new plan to have a couple of percentage adverse impact on the gross margin. However, the team was able to optimize the overall cost structure so that the gross margin remain the same as in Q3. This demonstrates the management’s commitment to drive healthy growth of the business, not only for the revenue aspect, but also as the gross profit and cash flow level.

This year, we will focus better supporting mid to long-tailed broadcasters and further strengthening the content ecosystem. A very important step for us to achieve that goal is to provide better motivation and recruit new talents so that we can maintain a good metabolic system. To serve that goal, in Q1 we made another adjustment to our incentive program to make it more attractive to the new comers. We currently expect this new program to have a couple of percentage impact to our gross margin starting from Q1. In return, we now have a well-rounded incentive program that can provide sufficient motivation to all important broadcasters in our ecosystem.

Non-GAAP R&D expenses for the quarter was RMB286.5 million, compared to RMB244.3 million for the same period last year, representing 7.5% and 5.2% of total revenue, respectively. We ended the quarter with 2,394 total employees, of which 807 are from Tantan. R&D personnel as a percentage of total employees for the group was 57%, compared to 58% for last year.

Non-GAAP sales and marketing expenses for the fourth quarter was RMB654.1 million or 17.2% of total revenue, compared to RMB554 million or 14% of total revenue for the same period last year. Non-GAAP G&A expenses was RMB134.5 million for the fourth quarter 2020, compared to RMB151.7 million for the same quarter last year, representing 3.5% and 3.2% for the total revenue, respectively. Non-GAAP operating expenses as a percentage of total revenue was 28.3%, an increase from 22.4% from Q4, 2019. The increase was mainly due to the negative operating leverage as a result of decrease in total revenue.

Now briefly on income tax expenses. In Q4, the company received an approval for qualification of key software enterprise for one of our major profit generating entities to enjoy a 10% preferential income tax rate for the fiscal year of 2019, which enabled us to lower our tax rate for the entity from 12.5% to 10% for fiscal year 2019. Therefore, we subsequently reversed over approved tax liability of RMB113 million to reduce the current quarter income tax expenses. As this qualification application is assessed by the relevant tax authorities annually, we make these tax adjustments upon receipt of our approval notice going forward.

Now turning to balance sheet and cash flow items. As of December 31, 2020 Momo’s cash, cash equivalents, short-term deposits and long-term deposits totaled RMB16.48 billion, compared to RMB15.23 billion as of December 31, 2019. Net cash provided by operating activities in the fourth quarter was RMB1.04 billion.

Lastly on business outlook, we estimated our first quarter revenue for 2021 to come in the range from RMB3.36 billion to RMB3.46 billion, representing a decrease of 6.5% to 3.7% year-on-year to a decrease of 11.5% to 8.8% quarter-over-quarter. For Q1 2021, on a year-over-year basis, we expected the total revenue from core Momo to decrease in low teen’s percentage. Total revenue from Tantan is expected to grow in the high 40’s percentage.

Please be mindful that the forecast represents the company’s current and preliminary view on the market and operational conditions which are subject to change. That concluded our prepared portion of today’s discussion.

With that, let me turn the call back to Cathy to start the Q&A. Cathy, please.

Cathy Peng — Head of Investor Relations

Yeah. Actually just a quick reminder for people who are in the queue to ask the question in Chinese first, and perhaps follow with English translation by yourself. And also if you could limit the number of questions to one to two that would leave more time for other people to ask questions.

Operator, we’re ready for questions. Thank you.

Questions and Answers:

Operator

Yes. Thank you. [Operator Instructions] First question comes from the line of Thomas Chong of Jefferies. Your line is open. Please go ahead.

Thomas Chong — Jefferies — Analyst

[Foreign Speech] Thanks management for taking my questions. I have two questions. The first one is about the user and the revenue trend during and after Chinese New Year for core Momo and Tantan? And also, can management comment about the full-year outlook, if possible? And my second question is about the spending. Can you comment about the marketing spending for this year, as well as the overall margin outlook? Thank you.

Li Wang — Director and Chief Executive Officer

[Foreign Speech] Let me translate first. It has been around five weeks after the Lunar Year holiday. During that period of time, it’s fair to say that the Momo core has been seeing pretty encouraging recovery trends, both in terms of traffic and in terms of grossing. I would attribute that positive trajectory to three major factors. One is the progresses that we made in improving the basic social experiences last year on the core. And the second factor is the fruits coming out of the structural reform in the second half of the year. And the third factor is right approaches that we adopted on the channel marketing side, both during and after Chinese New Year for the core Momo.

[Foreign Speech] More specifically on the user front, the average DAU so far into March on the core has already exceeded last December’s level in a pretty meaningful way. On the grossing front, we did see a pretty significant decline in both live streaming and VAS during the three weeks around Chinese New Year, but up until now live streaming — for live streaming it has already entered into a period of steady improvement. And VAS has truly been an outperformer here. It’s grossing has far exceeded — already far exceeded the pre-Chinese New Year level. It looks like that in Q1, we are going to see a pretty meaningful sequential growth from last Q4. And even on a Y-o-Y basis, we’re going to see a very notable acceleration, which is very impressive to me.

[Foreign Speech] For the whole year, although, now it’s still a little bit too early to get very prescriptive, but here are some big trends that I’m ready to share. For live streaming, I think this year will still be — still about improving the content ecosystem, enriching and diversifying the long tail content. So I would definitely put stabilization as the number one priority. And for that reason, I’m not going to adopt aggressive approaches to stimulate short-term revenue. But as the overall content ecosystem continues to recover, the spending is also going to see steady and gradual improvement on top of Q1. And as I said, we need that steady improvement to happen, not just at the revenue level, we need it to happen on a gross profit level as well.

For VAS on the core, we’re actually seeing a greater number of growth opportunities in relative to live streaming. And also from a product and traffic allocation perspective, we are also going to be leaning more toward VAS because it does have a more flattish distribution structure in comparison with — VAS does have a more flattish distribution structure in comparison with live streaming. And it is also more tightly knitted into the vantage that we have as a social platform.

So my expectation is that, this year VAS is also — VAS is still going to be growing very robustly on a year-over-year basis. As a percentage of total revenue, it’s also going to continue to rise. At the group level, I think the VAS revenue in Q1 is expected to reach close to 80% of live streaming revenue. In the future, I’m also hoping that we can continue to drive up that ratio from there. That is the fundamental differentiation and advantage that we have as a social platform as opposed to other entertaining providers out there in the market. I think this year, you guys are going to see us capitalizing on that advantage and differentiation in a bigger way than we did in the past.

[Foreign Speech] Now here is Wang Yu to talk about Tantan.

Wang Yu — Co-Founder and Chief Executive Officer, Tantan Limited

Okay. So firstly, let me elaborate a bit on the Q1 trends. In January and early February we pretty much focused on building growing our user acquisition materials and fixing other technical stuff in order to make the Chinese New Year campaigns more effective. So, the December weak user trends continued in January and early February. The — usually they started ticking up from late February. As said, we’re on track to deliver a better March DAU than last December, while further lowering total marketing costs from Q4.

Revenue wise, we had pretty strong seasonality this year due to the streaming services, because we have the big majority of our live streaming revenue coming from long-tail broadcasters who are difficult to manage. The broadcasting time and the number of channels saw very significant decline during the winter period — winter holiday period, [Indecipherable] the revenue to see a deep dive and also a slow recovery. Now the supply has come back and we expect the revenue to gradually ramp up from Q2 onwards.

Now some thoughts about the whole year. User growth is the single most important priority for Tantan this year. We had some initial success in sorting out the user acquisition approach in the post-Chinese New Year campaign. It definitely shows that we’re heading towards the right direction. In the coming few months we’ve lined up a few other new product updates, most of which aim at further improving the retention ratio on the platform. We’re confident that with these product and marketing efforts, we’re going to see solid user growth this year.

Revenue is not one of the top priorities for the company this year, neither is profit. We certainly care about top and bottom line. And long-term wise, there should be the outcome of user growth. But if this year, any of the financial goals temporarily goes against the product and user goals, we will definitely put ladder on top. Here is an example. As I said, after we adjusted our marketing approach, Tantan now has a much higher percentage of females in the newly acquired users, which is going to be a big, big benefit for dating ecosystem.

However, that actually lowers the paying conversion ratio pretty significantly because Tantan have — are much less likely to pay the men. Previously, we would have tried to reverse that change to raise the paying conversion because we need to meet quarterly numbers in revenue and paying users etc. But this year, this is going to be an example that we’re going to put the short-term numbers aside and focus on what’s really important for our future.

That said, I believe, overall, we’re still going to see pretty decent growth on the top line for 2021. Here are some drivers for it. Firstly, user growth will drive VAS growth. Secondly, we’re going to be rolling out a few new monetization features this year. Some of these are sub-based and others on the card [Phonetic]. For example, the virtual gifting around the voice dating experience that could further drive our people on the VAS. For live streaming this year, we’ll make a subservient to the product and VAS goals. This year we also prefer not to go any further in terms of raising monetization levels.

Putting everything together, most likely we’ll end this year with the majority of revenue coming from VAS, which goes more hand in hand with core dating in relation to live streaming. Thanks.

Jonathan Xiaosong Zhang — Chief Financial Officer

Hi, Thomas. This is Jonathan. Let me address your second question. On the marketing strategy for core Momo, actually, we are looking to keep the same level of channel investment for the payment — for the marketing channels, same dollar amount — similar dollar amount from last year.

However, as Wang Li said, this year some of our new apps are gaining traction. And we do like to keep the flexibility to invest more to grow the users and revenues for those new initiatives. But however, we’re focusing on the revenue growth on those new apps. So, I guess, we are probably looking to increase the marketing resources available for those new initiatives. We are looking at probably around 1% to 2% of total revenue for core Momo. So — but, however, we will need to make adjustments on the spending level or the spending plan on as we go basis, because a lot of it is really, really depending on the performance of ROI, so that’s the moving piece.

For Tantan, as Wang Yu just mentioned, Tantan’s team place the top priority on user growth. So we’re going to spend — how much they’re going to spend? We’re going to really — it will really depend on the pace and magnitude of the improvement of its marketing efficiencies and product rollout. So if we move faster, we will spend more. But however, the VAS revenue will grow up more. And if we need more time, we’ll spend less. And the VAS revenue will ramp up a bit slower. So instead of managing the live online target, we are more focusing on targeting a range of bottom line. At this stage, we are looking at further narrowing down the adjusted net loss for 2021 down by RMB150 million to RMB200 million from last year’s level. So that’s on the Tantan side.

In terms of margin trend, on top of the additional potential spending from core Momo. On the gross margin side, as I mentioned during the prepared remarks, due to the newly launched incentive program for new broadcasters, we do expect 2% to 3% margin impact on the gross profit — gross margin side, and that’s for — starting from Q1, tou can apply that throughout the year.

And, however, there are other factors probably will impact the margin on a quarterly basis, such as the revenue mix might have some impact. But however, we don’t expect the impact will be significant. So, overall, the gross margin will see 2% to 3% downtick for the year and also the potential higher selling marketing expenses from Momo. Thank you.

Thomas Chong — Jefferies — Analyst

Got it. Thank you.

Cathy Peng — Head of Investor Relations

Yeah. Operator, we’re ready for next. And maybe for the interest — in the interest of time, this will be the last one we take in.

Operator

Okay. Thank you. Yes. Our next question is from the line of Tian Hou of TH capital. Please go ahead.

Tian Hou — Analyst

Yeah. Good morning, management. Just a question on the VAS. Look at the financial results, VAS was growing pretty rapidly. And also Mr. Wang expressed enough confidence for 2021. So can Mr. Wang elaborate a little bit further on the drivers for VAS continue to grow in 2021? That’s my question.

Li Wang — Director and Chief Executive Officer

[Foreign Speech] With regards to the future outlook for VAS, we are actually seeing plenty of growth opportunities in VAS, both in terms of product innovations as well as revenue growth. As I said, over 80% of the time spent on Momo is in a variety of social experiences that are not related to live streaming at all. There is actually a lot of potential that we can cultivate in this big pool of users and traffic. In addition, other than Momo and Tantan, this year some of our newer applications are also becoming more meaningful revenue contributors. And that could push the VAS opportunities beyond the core Momo.

[Foreign Speech] More specifically, I think, in the year 2021, we’re mainly looking at several key drivers. Number one is, we’re going to continue to bring in new product innovations into the chat room experience. Things like the new interactive gifting experience, the new game place into the karaoke experience. All of these have proven to be effective levers that we can pull to drive continuous growth in the chat room. And the second area of growth is the revenue opportunities around the new applications and the new paying experiences that we’re testing. Things like Hertz and the video matchmaking experience, both within our core website, which is [Indecipherable], and as a separate application, which is [Indecipherable]. Other than these, we also have a few — a couple of other things [Technical Issues] that we’re testing. These new opportunities are increasingly coming into fruition on the revenue side. And — so they can be more of a longer-term driver for the VAS line.

And the third driver this year is going to be the innovations within the older experiences. For example, the interest group is a old experience, that has been around for many years. But after — have been around since the year 2012. But after the introduction of new gifting experience it started growing very impressively in the last year, making it actually one of the most important drivers for the VAS line. This year we also have plans to continue to introduce new stuff into the one-to-one chatting and also the group chatting in order to activate people’s willingness to pay for VAS.

[Foreign Speech] Now about Tantan. Tantan’s VAS is actually at a very early stage of development, in terms of user growth, ARPPU and the overall expansion of paying experiences. I think, obviously, the biggest, biggest priority for Tantan this year is on user growth instead of pulling other revenue levers, but actually in the coming three to five years Tantan should actually have bigger potential — bigger revenue potential in the form of VAS than Momo has today.

I think we’re approaching the markets open. So that will be the last question that we take today. And that also wraps up the conference call for today. Thank you for joining us. We’ll see you next quarter. Operator, we’re ready to close. Thank you.

Operator

[Operator Closing Remarks]